Good morning. As is usually the case of Fed Wednesdays, markets have quieted down and traded within a tight range only a few hours ahead of the FOMC statement. Both overnight markets saw a bit of data but it was largely ignored, looking ahead to today’s Fed statement. Chinese stocks rebounded a bit late in the session, stabilizing things and leading a more broad rally across Asian markets. China’s Shanghai Composite index gained 3.5%, snapping a three day losing streak on the hopes that authorities are prepared to act to prevent any further selloffs. The China Securities Regulatory Commission commented after Monday’s horrible decline that local governments would step up stock purchases and pledged new cash injections by the central bank. Yesterday, the same commission made it clear they would be investigating certain share dumping instances and finally today – some actual relief.
In Europe, sideways trading prevailed with only a bit of consumer confidence data to pace markets. Both German and French consumer confidence results were in line and EURUSD largely ignored these results, remaining pinned to Tuesday’s levels. Carrying the torch from Asian bourses, European indices were a sea of a green but it was more a lack of perceived bad news than anything else edging up stocks around the world. In North America, futures point to a positive opening as well as Wall Street anticipates a rosier outlook from the Fed. The pound Sterling remains one of the big winners this week, following better than expected Q2 GDP figures on Tuesday. Better than expected mortgage lending and approvals this morning kept GBPUSD elevated and is now testing its highest levels in over a week. As North American trading kicks off, things should tighten a bit now.
All eyes remain fixated on the Federal Reserve, which concludes its latest policy meeting at 2pm ESTthis afternoon. Chairman Yellen and company are expected to keep rates firm at 0.25% but a lot of attention will surely be paid to the accompanying statement. While domestic growth seems to have rebounded nicely following the dismal first quarter, the situation in China may play an integral role as policymakers weigh higher interest rates. Monday’sslide in the Shanghai Composite Index was the worst selloff in eight years and some analysts are expecting further losses over the coming weeks. Now that it appears the Greek situation has been resolved, the FOMC will weigh China’s impact on world markets as they weigh domestic policy. Additionally, markets will be keying in on language pertaining to progress in the job market and any new insights on inflation. Positive stock futures indicate the market is optimistic about what Ms. Yellen and her colleagues will divulge at 2pm.
On the data calendar today, we get US June pending home sales at 10am. The market is anticipating a 1.0% increase over last month and a continuation of the strong housing numbers that have been coming in of late. If the housing market could pick up real momentum, that would be an important card for Fed members to play when reasoning for higher rates. The previous four statements have been met with unanimous decisions of 10-0. The more “hawkish†Fed voters may break this week, with member Jeffrey Lacker the leading candidate. At the June meeting, one unnamed official was ready to vote for a hike but decided to hold off for “another meeting or two.†Turning to Canada, the Loonie found a bit of support yesterday after a strong PPI result. Producer prices rose 0.5% in June, led higher by prices for energy and petroleum products. Although Canada’s raw materials price index remained unchanged, it did not impact price action with only May GDP figures on Friday remaining on the data calendar. The USDCAD rate remains range bound for now, trading just below six year lows, with the impetus on another move higher on a hawkish FOMC statement.
Further reading:
EURUSD
FOMC statement
